PPC Ltd (PPC) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to PPC's interim results presentation for the 12 months ended September 2021. My name is Kwame Antwi, and I'll be your MC for today's event. We are hosted by Roland van Wijnen, who is the Group CEO of PPC. He's also joined by his executive team. They're going to take us through the results presentation. [Operator Instructions] Without taking too much of your time, let me hand over to Roland to take us through the results. Roland?

Thank you very much, Kwame. Good morning, ladies and gentlemen. It's a pleasure to share with you our results for the first 6 months of this financial year, together with my colleagues, Njombo, Brenda and Mokate. As usual, I will open with a few of the highlights, a little bit of the backdrop of the industry. And then I will hand over to Brenda, who will unpack the financial results followed by an operational update where Njombo and Mokate will talk through the main developments in their respective markets. But before I start, within PC Health and safety is important to us. So I would like to share with you the main statistics that we look at. On the top of the slide, you see the lost time injury frequency rate. that has been relatively stable, and we're not satisfied where we are despite the fact that we are slightly better compared to last year. Of course, COVID-19 is still with us. And as I speak to you, I regretfully have to inform you that since the outbreak of the pandemic, 7 of our colleagues have lost their lives to the pandemic. In total, we had 836 confirmed cases throughout the group, of which 828 have fully recovered and returned to work. As vaccination becomes available, it is imperative for all of us to protect ourselves and our loved ones. And thanks to the vaccination drives that we have done in all our countries, I am relatively pleased to report to you that 60% of the staff that is working in our operations throughout Africa is now fully vaccinated. Another 9% has had their first jet and will soon join the fully vaccinated group. That will bring us close to 70% before Christmas. That is not enough. We strive to come very close, if not fully, to 100% as vaccination is our best way out of the pandemic. Whilst we were in the middle of capital restructure over the last 2 years, we have not stand still to look at the future. When we look at the future, we know with the recent completion of COP26 in Glascow that climate change is upon us. We are, therefore, very proud that next week, we will release our first report a longer recommendations of the task force for climate-related financial disclosures, TCFD. And in that report, we will describe how climate change impacts our operations and what actions we will take to mitigate that. But equally important, we recognize that we are a contributor to the CO2 gases in our atmosphere and therefore, we will also be part of the solution. And we have set out our carbon intensity targets on the short and the medium term, joining the many companies that have a long-term commitment to net zero. Whilst that long-term commitment is important, we also have to recognize our starting point as an African company. And what we have set out to do is to reduce our carbon intensity by allocating capital to projects that are not only reducing the CO2 impact, but are at the same time, value accretive. On the medium term until 2030, we see a more important element of using waste to replace coal for which we will work with the governments in the various countries where we operate to make that possible. I'm very pleased to invite you to a webcast that we will be organizing next week, where we will go into the specifics of this important project. Looking at the highlights of our business over the last 6 months, I would like to read the slides from right to left. As in our opinion, the outcomes is ultimately what comes. And I'm very pleased to say that we have delivered once more improved results and were able to repay debt. Brenda will unpack that, and in the operational review, we'll go into more detail as well. Two years ago, more or less, I had the pleasure to stand in front of many of you for the very first time, pre-COVID. And I was asked the question, how will you restructure the debt of PPC? And will you need a capital raise to do so? And I answered in all honesty, I don't know. As at that stage, we did not know. I also said that we will, as Team PPC do whatever we can to avoid the need for a rights issue. And as I stand today in front of you, I can tell you that thanks to the contribution from many, from the Board of PPC to the business unit managers across PPC to the boilermakers in our plants, from the executives to the electricians, from the receptionist to the risk managers, and I can fill the whole alphabet if you would like me to. What I want to say is this was a team effort. And I'm very pleased to stand in front of you to say that Team PPC does not need a rights issue and has restructured its balance sheet. I already touched upon the third outcome which is our climate strategy going forward. Our focus areas will remain very similar to what they have been, protecting our employees and PPC, making the company stronger as we move forward, helping to build society. Improving our cash generation, addressing our capital structure through prudent capital allocation. We'll talk about that throughout the presentation as well and reducing our environmental impact. We, of course, do that in the context of our industry. And whilst we're pleased to see an emerging evidence that there is a sustained recovery of cement demand in all the markets where we operate, and we will be comparing both to COVID times as well as pre-COVID times throughout this presentation. We are very pleased that the South African government has recognized the necessity of a strong local manufacturing base, and there we've implemented the designation of cement to be used in government projects. At the same time, cement imports continued to surge. On the back of some Asian countries, dumping their materials below full cost price, benefiting from backhaul routes of the freight that goes from Africa into the Asian continent. And I would like to stress one point. For every bag of cement that is not produced locally, a local producer is unable to contribute to the communities in which they operate. For each bag that is imported, a local producer is unable to pay taxes that helps to drive society. For every bag, that is imported, a company in, for example, Vietnam, is able to pay taxes and help their communities. As a global citizen, I shouldn't mind where the development takes place, whether we lift poverty in Vietnam or in South Africa. As a temporary resident of South Africa it pains me to see that we're not doing the maximum to bring South Africa to the next level that it so much needs. Other backdrops in our industry are electricity supply. We are pleased that we continue to have very good cooperation with Eskom as well as with the electricity supplier in Zimbabwe. However, we do see instability as a threat to our operations. We have too much fluctuations in the electricity, not that it is necessarily not being supplied, but there are fluctuations as and when it is being supplied, which caused difficulties for our operations. I will also touch base on the inflation that is hitting us hard in the input cost. And whilst we have increased prices in all the jurisdictions, we were unable to increase prices at the level with which our input costs have gone up. And this is something that we will continue to address going forward. Overall, a resilient performance, I may say. On the left-hand slide, you see the main financial numbers. And I will not take the thunder from Brenda, so I'll leave it to her to unpack this in detail to you. I'll point you at the bottom, EBITDA margin of South Africa and Botswana cement. It has significantly increased from less than 14.5% in 2019 and 2020, first 6 months to a level of 18.7%. That is still not starting with a 2, so we still have work in front of us to make that happen. On the right-hand side, the significant progress made on the capital restructuring project, but I just want to highlight that post the reporting date of 30th of September, we have received slightly more than ZAR 500 million out of the divestment of PPC Line and Botswana aggregates, and that money has been used to further reduce our South African debt that stood at ZAR 1.7 billion at the end of September. And therewith, we have put PPC back on solid footing when it comes to our balance sheet. When I spoke to you last, we said that in our plans, we were looking at 2019 as a reference year, pre-COVID. So allow me to share with you in this slide how cement volumes have evolved from 2019 to 2020 to 2021. You see here on the slide on the left, the South African and Botswana cement volumes 6 months by 6 months. And you see the erratic behavior last year, impacted by the lockdown, impacted by the strong recovery thereafter. If we, however, compare our current 6 months that we're reporting on, with the 6 months of our financial year '20, which is the calendar year 2019, we see a 5% increase, which is in line with our expectations. And Njombo will unpack further where that growth is coming from. If we look on the right-hand side, we see Rwanda and Zimbabwe, especially Zimbabwe with an enormous jump of 31% comparing 2019 to 2021. And this is what we are seeing on the ground as well. This does cause us some challenges from time to time as well, and Mokate will unpack that when he talks about the Zimbabwe operations. Rwanda had a very strong first 6 months last year on the back of government-induced projects to mitigate the impact of COVID. They rolled out a massive education building, school building program that Cimerwa benefited from. But even without debt in these 6 months, our volumes remained stable, and it is a healthy double-digit 10% growth compared to 2019. I touched upon our input costs, and I would like to share with you how our costs are composed. This is an example of South Africa cement, South Africa and Botswana cement. A similar comparison can be made for Zimbabwe and Rwanda, the numbers will not change a lot. And you see that by far, the largest costs are electricity and distribution. Distribution, especially in the South African inland area, where we move goods around. On the right part, you see the percentage of changes in the prices of these input costs in the last 12 months. Electricity has gone up 16%. Distribution costs overall 12% and fuel higher than that. If we calculate the average producer price index for PPC South Africa cement, it stands at 9.2%. Our price increases on average are somewhere between 4% and 8% there with, the only reason that we have been able to increase our margin from 14.4% to 18.7% is on the back of the hard work done. And I would like to recognize the people in team PPC. I'll start with Kevin Odendaal, the Head of Group Supply Chain, who plays a major role in improving our logistics and negotiating the right contracts, but also all our operational managers around the group, our business unit managers, Becky in Inland, Johan in Coastal, [indiscernible] in Botswana, Kevin in Zimbabwe, Albert in Cimerwa and Iqbal in the DRC. Thanks to the team PPC, we are able to deliver what we have done. I'll hand over to Brenda to unpack the financials. Over to you. Thank you.

Thank you, Roland. Good morning, everybody. Maybe just an opening remark. All the commentary on the numbers relate to continuing operations and exclude PPC Lime, Botswana aggregates and PPC Barnet in the DRC as that entity is still treated as an asset held for sale. But moving on to revenue. Revenue for the group increased by 20% period-on-period and by 25% compared to the 6 months ended September 2019. However, as usual, due to hyperinflation, there involves do distort the numbers, as can be seen from the 55% increase in Zimbabwe in revenue. Revenue from the South African and Botswana cement operations increased by 17%, supported by an increase in volumes of between 12% and 15%. In Rwanda, as Roland mentioned, volumes were flat, and the decrease in revenue of 18% is by and large due to the strengthening of the rand against the Rwandan franc by some 19%. Cost of sales increased by 24% period-on-period, but is again distorted by Zimbabwe. Excluding Zimbabwe's costs as well as depreciation for the rest of the group, cost of sales increased by 9% and which is slightly below the increase in the group cement volumes of 11%, also excluding Zimbabwe. If 1 was to convert the cost per tonne of cement, the cost was flat period-on-period notwithstanding input cost inflation of 9.2% in South Africa. Stringent cost control remains a key focus and is delivering. Moving on to EBITDA. Group EBITDA increased by 13% period-on-period and by 28%, if 1 excludes Zimbabwe. The South African and Botswana EBITDA showed very strong growth, increasing by 67%. And in Rwanda, the EBITDA declined due to rand strength and the timing of plant maintenance, which was incurred in the current period versus H2 in the prior year. Adjusting for this maintenance, Rwanda's EBITDA was flat period-on-period in functional currency. This evolving EBITDA increased in functional currency, both pre and post hyperinflation. However, the ZWL depreciated by some 83% against the round, and this had a negative impact on the disclosed rand and EBITDA. As usual, PPC has quite a number of material noncash items, and this slide shows the period-on-period key noncash items affecting the earnings. The current period earnings were positively impacted by ZAR 667 million compared to ZAR 85 million in a comparable period. The significant variances are ZAR 368 million due to fair value and foreign exchange movements. In excess of ZAR 200 million of this variance is due to a reduction in the foreign exchange losses on conversion of U.S. denominated monetary items. This is due to a significant depreciation of the ZWL against the dollar in the prior period of some 326% compared to only 44% in the current period. In addition, the actual net monetary liabilities have decreased period-on-period. There's ZAR 98 million variance which goes the other way, and that is due to a lower fair value gain on the Zimbabwean financial asset relating to the legacy debt, which decreased from ZAR 9.2 million in the prior period to ZAR 4.2 million in the current period. A positive ZAR 114 million variance is due to the increase in the net monetary gain when hyperinflating [ of all these ] numbers. And lastly, ZAR 189 million variance, which is the net profit resulting on both the sale of the Line and the Botswana aggregate businesses. I will deal with the effective tax rate next and then show you the after-tax impact of the noncash items I just discussed. As can be seen, our effective tax rate reduces by almost 16% due to the nonmonetary items I talked about on the previous slide. The 2 increases are due to under provision of tax in prior periods, resulting from the conclusion of a tax audit on PPC Cement by SARS. And lastly, certain entities in the group have tax losses on which deferred tax is not raised which negatively affects the effective tax rate by 2%. Normalizing the earnings now for noncash items after tax, the only noncash item that has a tax impact is the foreign exchange losses in Zimbabwe. As can be seen -- on an after-tax normalized basis, earnings increased by 19% compared to the prior period. The slide depicts the evolution of CapEx in the group over a number of years. Important to note that since March 2020 now effected are all only for continuing operations and therefore, exclude the DRC Lime and Botswana aggregates. The focus for CapEx spend is on maintenance and improvement CapEx was ZAR 279 million being spent in the current period under view. Of this ZAR 279 million, less than 30% was spent in the South African operations with spend in Zimbabwe making up the majority of the amount. The guidance for the year remains between ZAR 500 million and ZAR 550 million. Right. Moving now to the cash flow for the 6 months. The group generated strong cash flow of ZAR 849 million after working capital movements. After funding the CapEx I've just talked about free cash flow amounted to ZAR 502 million. ZAR 330 million was used to further deleverage the balance sheet, which I will deal with on the next slide. Right. This shows the continuous good progressing on deleveraging the group across the operations. Gross debt has reduced from ZAR 2.6 billion at 31 March 2021 to ZAR 2.3 billion at 30 September 2021. The proceeds from the sale of Lime and Botswana aggregates of some ZAR 500 million will further deleverage the balance sheet in the second half. I will briefly deal with the credit metrics on the next slide and then close the progress of the group restructuring and refinancing project, which includes progress to restructure our South African debt facilities. The 2 key covenants of interest cover and gross debt to EBITDA are more than 2x and less than 5x, respectively. As can be seen at 30 September 2021 the South African Obligor Group is well within these covenants with further improvements post period as the proceeds from Lime and Botswana are received. Just to close our second last slide on the group capital restructure. 3 critical milestones have been achieved during the 6 months. As you're all aware, we had undertaken to sell PPC Lime and that has been achieved, as Roland mentioned as well, and the need for an equity raise has gone. We have also proactively engaged with our banks to renegotiate structure and tenure facilities and nonbinding term sheets have been signed in this regard, for some ZAR 2.1 billion of debt, of which ZAR 1.5 billion is long term with tenures of between 3 and 5 years. We are currently in the process of preparing binding long-form agreements and expect these to be signed before the close of the calendar year. The finalization of the DRC long-form agreement is taking longer than expected, but the recapitalization of PPC Lime balance sheet has commenced and is expected to conclude by 31 2021. It's important to note again that there's no further recourse to PPC Limited's balance sheet regardless of the progression of the long-form agreements. To close the highlights for the 6 months of improved financial performance, further degearing of the balance sheet. However, importantly, we have not lost focus on the imperative to continue to improve the internal financial controls. Good progress has already been made in this regard, but it will continue to be a focus area across the group. Thank you very much. I'll hand you back to Roland.

Thank you, Brenda. The next chapter in our presentation is around the operational results in the various jurisdictions where we operate. Before I hand over to Njombo to talk about South Africa and Botswana, I'll slightly pause at this particular overview, where you see revenue and EBITDA as well as EBITDA margin for all our different operations. And I will not dwell upon the fact that we have major increases compared to last year as that was obviously locked down into the last year. But if you look overall on the right-hand side and you compare our EBITDA margin achieved in the financial year '20 compared to what we're currently having in financial year 2022, you will note the strong increase in South Africa cement. And I would also like to highlight to you our Materials business. And I'd like to particularly congratulate the business unit materials of South Africa under the leadership of Dave Miles. Dave have managed to turn the business around under difficult circumstances. As the infrastructure spend of the government is yet to truly kick in. We see that our ready-mix concrete volumes are below 2019. They have, nevertheless, made a tremendous turnaround and are now able to report an EBITDA margin above 6%. And I think that is well done. You will see the significant drop of the Zimbabwe EBITDA margin. And you might recall that when we were reporting to your EBITDA margins above 40%, we did notice that we believe those were not sustainable and largely a result of the hyperinflation environment. Whilst Mokate will unpack the details, we have seen a normalization of EBITDA margin. That was further impacted by the fact that Zimbabwe, as I mentioned to you before, required to import clinker from South Africa mainly. Without further ado, let me hand over to Njombo to talk you through South Africa and Botswana. Njombo, floor is yours.

Thank you, Roland. Afternoon -- morning. As Roland mentioned, behind this performance, there is a highly passionate and dedicated [ Jabali ] team behind the results. And on that note, I would like to echo his wits and thank the people of PPC and the [ Jabali ] family in terms of their contribution. Without further ado, I'll just talk about our business and firstly focus on the industry itself. We're still starting to see a normalization on the retail sector. But the business itself is still carried mainly by the rural and the informal markets. We're starting to normalize towards the 2019 volumes in terms of the retail. The industry itself welcomes the clarification of designation of the cement. And this is very positive for the industry in terms of like giving some kind of confidence on the government support to the sustainability of the industry in South Africa. And it also gives us an encouragement that our quest to try and reduce the number of imports coming into the country, it's something that the government will be able to work with us. Whilst we do not see adequate improvement in terms of the government infrastructure rollout, we're starting to see some green shoots coming through However, the industrial sector has shown some significant growth of about 28%, be it coming from a very, very low base. What is encouraging is the fact that there is a lot of private sector investment that is going into the industrial sector. And I'll talk about that later on. In terms of our forecast area, one of the areas that we have been focusing on was the optimization of our assets, improving our footprint in relation to our profitability, and we've made very good progress in that, as indicated on the numbers. And from our total value proposition, our product range, we've managed to really bed down the consistent product quality. And at the moment, we feel that we're leading in terms of the service in the industry and the ability to utilize our assets in delivering that value. We also focused on entrenching our route-to-market strategies with a very specific value offering in terms of the products and the customer diversification, which ensures a value proposition to our customers. In terms of the outcomes, despite the cost pressures that we're seeing, the operational efficiencies in our organization or in terms of the business, we have improved. Roland mentioned the optimal sourcing that we have done with the supply chain. It is an area that has got a huge impact in our costs. And at this stage, we feel that it's very well controlled and it has been a focus area in terms of ensuring that we get sustainable margins. So we optimize the sourcing and the distribution with a very special focus on implementing technology to drive our supply chain business. One of the other positives is our ability to be agile so that we could secure opportunistic sales, and that agility was built into our 3 mega plant strategy, which is starting to pay off in the sense that when the demand picked up, we were able to bring in new capacity to meet that demand. And when we look at our volumes, we've spoken about the 12% to 15% increase on -- in terms of the period. And earlier, Roland highlighted the 5% increase in our volumes going back to the 2019 comparative. That has resulted in a very good improvement in terms of the revenue at 17%. And what is mostly important is despite the cost pressures we were still able to show an improvement on our margin as has been stated before. There is so much talk around the local designation. And as an industry, we welcome that from just the fact that it is an indication of the seriousness and the commitment of the government to protect local manufacturing. Obviously, PPC is a beneficiary. But what is most important is the industry as a beneficiary in the whole designation. And the country as a whole, if we look at the value chain the amount of jobs that we can grow and retain in South Africa because of the local capacity being utilized. Just as an example, if you work out the imports that have come into the country, that's equivalent to about ZAR 900 million that has gone out to pay for those imports coming into the country. So it is a significant improvement. And as a business itself, it is beneficial to ourselves, to our stakeholders in the sense that we can be able to do all those community aspirations that we have. But most of all, we currently being busy with the construction master plan, which will help to define what is South Africa going to be doing in the space of construction and creation of those jobs for its recovery. And one of those designation impacts is the fact that it starts defining the pipeline in terms of the infrastructure and us being able to take advantage of it. Next Slide. So just to give a flavor of what the imports have done into our business, they continue to [ bother ] us. If we look at the total imports, a combination of cement and clinker, that has increased by about 30%. And just to give you a context, the volume that we indicate and estimate that we're going to end at the end of the year is basically an equivalent of one unit in our operation in the Western Cape, which we could actually get up and running and be able to supply jobs in our local economy. Lastly, I would like to talk about the materials. Roland has given all the accolades to the team and it is a very well deserved accolade in that sense that the improvement with regards to the volumes is not that significant as our materials is very dependent on the infrastructure rollout. However, if we look at the industry itself, it has benefited from the increased distribution centers that are being built especially in the Holtec area, which has improved the volume. And then the fly ash has shown a bit of a decrease relative to last year. Obviously, that is related to the retail sector having slowed down. And also last year, we went through a period where the extenders were in a shortage, which gave an opportunity for fly ash to increase in terms of the supply. However, the fly ash volumes are higher than the previous 6 months ended September '19. In terms of the forecast, the material teams have been able to reduce their operating costs. And this is also with a very special focus on higher-margin markets. Also did very well in terms of the route-to-market strategy focusing on the expansion into the informal sector. in line with our diversified strategy of market approach. Whilst we paid a special attention on the margin and value creation in the business. We also took advantage of group synergies in terms of delivering value, ensuring that the customers are receiving our product on time, but also taking an advantage of the fact that we can at least be able to give a packaged offering to their customers. In terms of the of the offering of the outcomes, we've seen the restructure in the materials business, which encases relocations of plants, focusing on the most profitable plants and also the capacity utilization of plants. We're seeing the results coming through. And then the aggregates business, we actually focused on the micro CPMs and going direct to those micro CPMs. And we're quite pleased with the results in terms of improved margin and also increased volumes coming from there. And the one focus area in terms of the -- and changing of the basket offering has actually created adequate value and competitive advantage in many instances on the materials business. As Roland mentioned earlier in terms of the margins that we are managing to get from the materials business. This has come with very little in terms of the volume increase, but if we compare year-on-year, 27%, obviously, coming from a COVID year, it's actually a very good increase. The fly ash volumes decreased. As I stated before, this is coming from a very high base that was related to the previous year. All in all, it's an improvement from the materials business coming from a loss position and showing an EBITDA of ZAR 37 million at a very good EBITDA margin. Thank you. I'll hand over to Mokate.

Thank you, Njombo. I think my colleagues, both Roland and Brenda, they've given you a glimpse of our operating conditions in Zimbabwe. I think what we've seen in Zimbabwe, the operating conditions has been challenging. We've seen frequent monetary and policy changes that has really created an uncertainty in the market. The good thing is what we've seen, the market -- domestic market in Zimbabwe grew by roughly 18% to 22%. And PPC volumes during the same period grew by the same percentage. And we've been able to maintain our market share in Zimbabwe about 57%. However, the overall industry performance has really allowed for inputs to continue entering the Zimbabwe market. We've seen imports growing compared to the last first half by more than 100% due to the performance of the overall industry. And the good thing is we've been able to secure more than 50% of our volumes in foreign currency. As I've mentioned previously, with the introduction of multicurrency and free fund in Zimbabwe, it allows us to trade in both the rand, the koala and the U.S. dollar. And we've seen us gaining volumes of almost 50% in foreign currency. What we've done -- sorry, I haven't turned the slides, I thought Njombo -- my apologies. I didn't realize that you are still on the wrong slide, my apologies for that. And what we've done in Zimbabwe, we've also secured fly ash. You've seen Roland when you started, you spoke about decarbonization. It is a priority for us in Zimbabwe. We've secured future fly ash that will come up in the second half of the next calendar year. This will really assist us by having decarbonization in Zimbabwe and obviously also reduce our costs. In terms of industrial performance, you've seen last year, I mentioned that volumes grew quite substantially post lockdown. And the reason for that growth -- the impact of the growth was that we had to shift our maintenance shutdown on the Colleen Bawn. As you well all know, killing shutdown is quite an annual event and it's quite critical to ensure reliability of your plant. The deferment of this key shutdown could not continue. So in the beginning of this first half, we have made a deliberate decision to execute the shutdown and to support the growing demand in the market, we exported 60,000 tonnes of clinker, of which 48,000 tonnes is thanks to my colleague, Njombo from South Africa, has enabled us to execute the maintenance shutdown successfully. And we've done also quite a lot around people, as we realize that cement skills overall is becoming a very scarce resource. So we've brought in highly competent Zimbabwean guys for us to come and support the team in Zimbabwe, and we're starting to see the results in terms of industrial performance. And I would like to really thank the Zimbabwean team because they operate under very difficult conditions. But the performance and what we're seeing in the market is settlement of all their efforts. As Brenda alluded earlier, our margins in Zimbabwe are really distorted by hyperinflationary accounting and also depreciation in terms of the EBITDA of the ZWL against the rand has had an impact on our EBITDA. Moving next to Rwanda. Roland mentioned area in Rwanda, the first half of last year, we had upstage in volumes in quarter 2 of the first half. mainly driven by the volumes that went into government infrastructure projects to mitigate against COVID. And those volumes -- those projects -- the project actually ended quarter 3 of the last financial year. So if you compare this half and last year's half the quarter 2 was quite abnormal in terms of the volumes. What we've overall seen in terms of the industry, the industry sunk -- volumes demand sunk by 4% to 6%, and we've seen a similar trend in terms of our domestic volumes. But what you'll see is our overall volumes showing relatively flat. And the reason for that, when we saw the decline in the domestic market, we aggressively went into the exports, and we've seen growth above 30% in export market, particularly in the eastern part of the DRC. Rwandan economy, like many other economies faced difficulties with COVID. And we're seeing a rebound of the GDP from a negative 3% to above 6% going forward. And we've seen some green shoots with new projects that are coming up. We've recently secured the Bugesera Airport where we expect the volumes to come on stream in the second half of this financial year. And secondly, in Rwanda, what we've also done, we've really started Phase 1 of our debottlenecking or Phase 2 of our debottlenecking. We've done quite a lot of work in the first half compared to last year where we actually ran our plant full steam in the first half. We did a shutdown in the first half. And where you see when you compare the performance of last year and this year, slight indifference in terms of our EBITDA, mainly coming from the release of OpEx in the first half to address our maintenance shutdown. And secondly -- lastly, we actually had a fatality last year in Rwanda. And this was for us an [ ISA ]. We took this very seriously. We started this very aggressive safety initiation -- initiative program in Rwanda. And to date, Rwanda has actually performed quite well. We had an unfortunate LTI, which was really minor, slippery. But overall, we're seeing a much better safety performance across all our markets purely because of the focus that we have put in place. Thank you.

Thank you very much, Mokate. Thank you, Njombo. Ladies and gentlemen, with that, we are coming to the end of our presentation. Allow me to summarize in 4 bullet points. I hope you will concur with us that Team PPC has delivered a solid performance operationally as well as financially, reflecting the efforts that we have done over the last years to reposition our business, to resize our business to the environment in which we operate. We will therefore continue to play a meaningful role in building societies and delivering on our purpose to empower people to experience a better quality of life. I smiled at the second bullet point. Focus will be on completing the capital restructure because I am blessed to be in a position where I might enter early, but I'll also exit a little bit early. So for me, the financial restructure is done. I know and I appreciate that colleagues such as Christi Monoseni, our FD International, Kevin Ross, our Head of Legal, and to a certain extent, Brenda and Iqbal Omar are still very busy with the administrative ending of this project. But I think we are looking now forward. We're looking forward to growing our business on stable footing. And that growth will partially come out of the reduction of our carbon intensity. Our search for new revenue streams that are related to our business, but not necessarily in the core of our synergies. And that is where our Materials business in South Africa is going to play an important role. Concrete is known that it can absorb CO2 during its life cycle. And we will continue to need concrete as we go as a country through the transition into a greener economy. But we have to bear in mind that, that transition has economic and sociographic consequences. And within the continent of Africa, we cannot be held accountable for solving a problem that wasn't created here. Lastly, the inflationary pressures are here to stay with us for the near term. And we will, therefore, have to regularly adjust our prices and do our homework on the cost side in order to further expand the margins and earn the return on the capital that has been provided to us by shareholders and banks. With that, I'd like to close and we'll pause for a short moment and then we'll take questions. Thank you very much.

Thank you, Roland. If we can cross to the teleconference, just to see if there are any questions on the conference line.

At the moment, we have no questions on the teleconference.

We'll move over to the webcast questions. The first question comes from Stefan Klintworth of DNI. Government has recently banned the use of imported cement for government projects. Is the company expecting this decision to have a material impact on revenue going forward?

Thank you very much for that question. I'll hand it to Njombo, who is closest to the impact. Njombo, over to you.

Yes. Actually, we do expect it to have an impact. However, this is all dependent on the delivery of the infrastructure project. So the country announced ZAR 595 billion that is set aside for infrastructure projects. If you estimate about 7% to 8% usage of cement in that and our basic share of about 25% to 30% in that particular space on the industrial side. then you're thinking about, say, a contribution of 15% or so on our revenue line. However, on the recent study, we probably have spent as a country about ZAR 19 billion of the ZAR 595 million. So it is mostly the impact is dependent on the rollout of the infrastructure.

Thank you, Njombo. The next question comes from David Fraser of Peregrine Capital. The net finance cost in SA of ZAR 12 million appears low. Can you unpack the ZAR 159 million finance income into its components?

Brenda, can you?

Of course, I can. I wish our net finance costs were well. David, I think one must submit those 2 numbers that you see in the segmentals. The actual -- then you get that very distorted picture. The actual finance costs have come down from last year and one would expect them to because our facilities, the utilization is probably less than half. The confusion, I think, comes in, in the investment income of ZAR 159 million. That is simply an intra-group income. And if you look across the page, you'll see it clicks out in group services and other. So that distorts the south Africa cement operations if that helps you.

Thank you, Brenda. The next question comes from Shoaib Vayej of Afena Capital. Does CapEx guidance incorporate the climate CapEx of ZAR 664 million over 5 years? Or will this be additional to typical stay in business CapEx levels? The second question, why was clinker only recently added to the iTech application?

Okay. Thank you, Shoaib. Allow me to take the first question. The ZAR 664 million over the cycle until FY '25, largely stays within our normal CapEx envelop. Those are projects that we would have done anyhow. That is approximately 40% of that related to one particular project that is currently under feasibility, that will allow us to significantly reduce clinker factor and postpone future investments, positive in the NPV. We are currently going through the process of finalizing technical feasibility, and I'll invite you to our session on Monday, where we will unpack some of these technical projects in more detail. The question why clinker was only recently added to the iTech application is a very good one. So I'll ask Njombo to answer that.

Yes. I think it goes with saying that when you're considering tariffs, basically you're considering what is the cost of production in country. And the biggest risk that comes with that is once you put on tariffs on cement, basically the input material, which is clinker, also starts being a viable solution for importers. And we've seen it in East Africa, and there is also a potential risk in South Africa in terms of the grinding stations. So when we put the application with the iTech, one of the questions was, how is this going to impact the in-process material and the beneficiation in country? And that's what led to us extending that into that clinker.

Thank you, both. In keeping with imports, Mark Narramore from Excelsia Capital has asked, where do you expect total imports to be for 2021 from a volume perspective?

So in terms of the imports, we expect that they will be in excess of ZAR 1.4 million. And that is about 10% or in excess of 10% of the local demand with regards to cement.

We have another question related to imports. That is from Stephen Hurwitz of 361 Asset Management. Despite government only using local cement going forward, imports will still arrive from overseas. Does this mean imports will just displace market share in the retail market?

Yes. Imports does have an impact on the retail market. However, we expect that South Africans also understand the impact of imports in terms of buying local and using local products. So yes, it will have an impact on the retail market space.

Thank you, Njombo. The next question comes from Rowan Goeller of Chronux Research. Are you taking a leadership role in pricing? Will you hold prices even if competitors discount? Can you get real price increases over the next year? We have a similar line of questioning from Zaid Paruk of Aeon Investment Management. How do you see pricing changing over the next period? Do you think customers are able to take additional increases? And will this effect volumes?

Thank you, Zaid. Thank you, Rowan. I would claim that we take leadership roles, not just in pricing. We take leadership roles in all we do, and we have been doing so, and we'll continue to do so. The price increase that we see necessary for January is in the range of 5% in my opinion, it should actually be a little bit higher to compensate the inflationary input costs. But we are in a competitive landscape, number one. So we will not simply hold prices if everybody else discounts. We have a certain market share. We're happy with our current market share. We don't want to see it coming down. but we will hold prices similar to what Njombo has done already 2 years ago. And I think it's necessary that as a leader in the industry, we play that role. And we also expect that we see following from other players in the market, because we know that nobody is at the moment, earning their cost of capital. At the same time, we're, of course, also sensitive to the fact that given the designation of cement to be used in government projects, we will be watched carefully for so-called predatory pricing, which is something that we're not planning to do. We're looking at passing on import -- sorry, passing on cost increases that we have in our import materials. Whether we think that customers are able to take additional increases, whether this will affect volumes. It could affect volumes, and therefore, we have not yet increased our prices with the amount that our input costs have increased as we've done good on cost management as well. So balancing everything, as I said to you before, for South Africa and Botswana cement, the challenge is to deliver an EBITDA margin that starts with a 2. And that will need price increases.

Thank you, Roland. The next question from Mark Narramore at Excelsia Capital. Would you expect similar EBITDA margins in the second half for SA cement?

Well, it wasn't -- wouldn't get us to the 2, Mark, but let me ask Njombo.

Yes, we just dealt with the question around the price increases. Obviously, that has got a huge impact in terms of the margins. And yes, we are expecting to stay within that. And as we indicated earlier, our average increase or inflationary increase on inputs is much higher than what we can expect to get from the market. And therefore, that will put a lot of strain on the margins. However, an increase in capacity utilization in our operations has got a positive impact in terms of the cost, which is why things like designation gives us a chance to be able to be competitive without actually just depending on the price to improve the profitability.

Thank you, Njombo. The next question comes from Clifford [indiscernible] as a private investor. Is the proposed listing of PPC SA and Botswana and PPC and the rest of Africa going ahead?

Thank you, Clifford. To my knowledge, we've never spoken about a separate listing of the 2 entities. What we have spoken about is a first step is to set the balance sheet of South Africa from the balance sheets of the individual countries in PPC International. That has now effectively been done. We've also said that we understand that the PPC International business is in a high-growth area that will require further capital to participant in the growth and that we might be looking for an external investor in that particular business. Now that we're coming out of the recent restructure work, we will seriously apply our mind as to how and when we will grow our international business without tapping into funds that are being generated from our South African business.

Thank you, Roland. The next question comes from Charles Boles of Titanium Capital. The industry is not its cost of capital. The outlook for GDP growth is muted to about 1.5% can the industry achieve an acceptable cost of capital without industry consolidation?

Thank you, Charles. I think it can. That's part of the answer. The other part of the answer is that I don't think consolidation is the holy answer to this question. So for us, it is all about making sure that we have our cost base properly under control that we leverage from the increasing volumes, whether they come slowly or fast, they will come over time. and we're sitting on at least 30% volume that can still be released in the market without significantly increasing our cost. This is a cyclical business. So I do think that the industry can achieve, at least PPC, so let's speak for PPC, can achieve an acceptable cost of capital recovery without consolidation.

Thank you, Roland. The next question comes from Chris Reddy of All Weather Capital. He's actually got 2 questions. I'll start with the second one because it's also similar to a question from Clifford [indiscernible], the private investor. At what stage would you look to reinstate the dividend and the similar one from Clifford, when are you focusing to pay your first dividend based on current projected cash flows?

Brenda?

Look, I wouldn't like to give a precise date. It is something very much on line. As you know, right now, we opportunity from clearing dividends. That will change when the long-form agreements that I refer to the banks lined into. And I think it's something that we'd like to discuss possibly with our Board before formally communicating to the market, but we definitely have an aspiration to restart it.

Thank you, Brenda. The next question comes from Chris Reddy of All Weather Capital again. Please can you give us an indication of the new interest rates that you're looking to sign with the facilities being refinanced, it's the ZAR 2.1 billion. He's looking for guidance on further interest savings going forward.

Brenda?

Sure, Chris. I hand give you a bit of guidance. I think 2 things. The absolute use of the facility is going to be significantly lower. So although we have ZAR 2.1 billion of the facilities, as you would have noticed from the slides, at September, we were only ZAR 1.7 billion drawn, less the ZAR 500 billion is ZAR 1.2 billion. So much lower utilization than in the past. And then on the interest rate itself, on a weighted average basis across all acuities and we'll obviously try and use them optimal, but even if you just look at it that way, probably between 150 and 120 bps cheaper.

Thank you, Brenda. If we can just share again on the conference line, are there any questions?

There are no questions on the telephone line.

[Operator Instructions] It appears that there are no further questions.

Thank you very much. Thank you for your questions. Thank you for your interest in PPC, we would like Kwame to close the session. One more question?

One more question. One question has just come through from the Zaid Paruk of Aeon Investment Management. Could you provide some insights on what you're seeing from the government infrastructure program. Are projects gaining traction?

Njombo, you want to take that?

Yes, the SANRAL which is busy with the roads, there is some advancement in there, and we've seen some projects coming through. Currently, there is a lot of tender activity that is going on. We're looking and saying with the recent elections, will there be any projects coming from the local municipality. And yes, with the water projects that the repairs have started, we're expecting some of those tender for activities to result in projects kicking off.

All right. Thank you, everyone, for joining us. This is the -- this is the end of our presentation. For any of you who have additional questions, kindly direct them to myself or Luis. Our e-mails are available or on PPC's website at the Investor Relations section, and we'll promptly address it for you. I think that's it. Thank you very much, and enjoy the rest of your day.